Dividend investing is a tried-and-true strategy for generating strong, steady returns in both good and bad economies. But as corporate America's slew of dividend cuts and suspensions over the past few years has demonstrated, it's not enough simply to buy a high yield. You also need to make sure those payouts are sustainable.

Let's examine how Aqua America (NYSE: WTR) stacks up in four critical areas to determine whether it's a dividend dynamo or a disaster in the making.

1. Yield
First and foremost, dividend investors like a large yield. But if a yield gets too high, it may reflect investors' doubts about the payout's sustainability. If investors had confidence in the stock, they'd be buying it, driving up the share price, and shrinking the yield.

Aqua America yields 2.9% -- moderate and worthy of further investigation.

2. Payout ratio
The payout ratio might be the most important metric for judging dividend sustainability. It compares the amount of money a company pays out in dividends to the amount it generates. A ratio that's too high -- say, greater than 80% of earnings -- indicates that the company may be stretching to make payouts it can't afford.

Aqua America’s payout ratio is a moderate 62%.

3. Balance sheet
The best dividend payers have the financial fortitude to fund growth and respond to whatever the economy and competitors throw at them. The interest coverage ratio indicates whether a company is having trouble meeting its interest payments -- any ratio less than five is a warning sign. Meanwhile, the debt-to-equity ratio is a good measure of a company's total debt burden.

Let's examine how Aqua America stacks up next to its peers:

Company

Debt-to-Equity Ratio

Interest Coverage

Aqua America

138%

4 times

American Water Works (NYSE: AWK)

138%

2 times

California Water (NYSE: CWT)

118%

3 times

American States Water (NYSE: AWR)

95%

4 times

Source: Capital IQ, a division of Standard & Poor's.

4. Growth
A large dividend is nice; a large growing dividend is even better. To support a growing dividend, we also want to see earnings growth.

Over the past five years, Aqua America’s earnings per shares have grown by 7% annually, while its dividend has grown at an 8% rate.

The Foolish bottom line
Aqua America exhibits a reasonable dividend bill of health. Its payouts are covered by earnings. Because of its fairly significant leverage, dividend investors will want to ensure that the company is able to maintain stable earnings.

To stay up-to-speed on the top news and analysis on Aqua America, or any other stock, simply click here to add it to your stock watchlist. If you don't have one yet, you can create a watchlist of your favorite stocks by clicking here.

Ilan Moscovitz doesn’t own shares of any companies mentioned. You can follow him on Twitter @TMFDada. The Motley Fool owns shares of California Water Service Group. Motley Fool newsletter services have recommended buying shares of California Water Service Group and Aqua America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.